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What Iceland’s election tells us about post-crisis European politics

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Iceland was supposed to be different.Iceland Flag IconEuropean_Union

In allowing its banks to fail, neo-Keynesian economists have argued, Iceland avoided the fate of Ireland, which nationalized its banks and now faces a future with a very large public debt.  By devaluing its currency, the krónur, Iceland avoided the fate of countries like Estonia and others in southern Europe trapped in the eurozone and a one-size-fits all monetary policy, allowing for a rapid return to economic growth and rapidly falling unemployment.  Neoclassical economists counter that Iceland’s currency controls mean that it’s still essentially shut out from foreign investment, and the accompanying inflation has eroded many of the gains of Iceland’s return to GDP growth and, besides, Iceland’s households are still struggling under mortgage and other debt instruments that are linked to inflation or denominated in foreign currencies.

But Iceland’s weekend parliamentary election shows that both schools of economic thought are right.

Elections are rarely won on the slogan, ‘it could have been worse.’ Just ask U.S. president Barack Obama, whose efforts to implement $800 billion in stimulus programs in his first term in office went barely mentioned in his 2012 reelection campaign.

Iceland, as it turns out, is hardly so different at all — and it’s now virtually a case study in an electoral pattern that’s become increasingly pronounced in Europe that began when the 2008 global financial crisis took hold, through the 2010 sovereign debt crisis in the eurozone and through the current European-wide recession that’s seen unemployment rise to the sharpest levels in decades.

Call it the European three-step.

In the first step, a center-right government, like the one led by Sjálfstæðisflokkurinn (Independence Party) in Iceland in 2008, took the blame for the initial crisis.

In the second step, a center-left government, like the one led by Jóhanna Sigurðardóttir and the Samfylkingin (Social Democratic Alliance) in Iceland, replaced it, only to find that it would be forced to implement harsh austerity measures, including budget cuts, tax increases and, in Iceland’s case, even more extreme measures, such as currency controls and inflation-inducing devaluations.  That leads to further voter disenchantment, now with the center-left.

The third step is the return of the initial center-right party (or parties) to power, as the Independence Party and their traditional allies, the Framsóknarflokkurinn (Progressive Party) will do following Iceland’s latest election, at the expense of the more newly discredited center-left.  In addition, with both the mainstream center-left and center-right now associated with economic pain, there’s increasing support for new parties, some of them merely protest vehicles and others sometimes more radical, on both the left and the right.  In Iceland, that means that two new parties, Björt framtíð (Bright Future) and the Píratar (Pirate Party of Iceland) will now hold one-seventh of the seats in Iceland’s Alþingi.

This is essentially what happened last year in Greece, too.  Greece Flag IconIn the first step, Kostas Karamanlis and the center-right New Democracy (Νέα Δημοκρατία) initially took the blame for the initial financial crisis.  In the second step, George Papandreou and the center-left PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα) overwhelming won the October 2009 elections, only to find itself forced to accept a bailout deal with the European Commission, the European Central Bank and the International Monetary Fund.  In the third step, after two grueling rounds of election, Antonis Samaras and New Democracy returned to power in June 2012.

By that time, however, PASOK was so compromised that it was essentially forced into a minor subsidiary role supporting Samaras’s center-right, pro-bailout government.  A more radical leftist force, SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς), led by the young, charismatic Alexis Tsipras, now vies for the lead routinely in polls, and on the far right, the noxious neo-nazi Golden Dawn (Χρυσή Αυγή) now attracts a small, but significant enough portion of the Greek electorate to put it in third place.

The process seems well under way in other countries, too.  In France, for examFrance Flag Iconple, center-right president Nicolas Sarkozy lost reelection in May 2012 amid great hopes for the incoming Parti socialiste (PS, Socialist Party) administration of François Hollande, but his popularity is sinking to ever lower levels as France trudges through its own austerity, and polls show Sarkozy would now lead Hollande if another presidential election were held today.

It’s not just right-left-right, though. The European three-step comes in a different flavor, too: left-right-left, and you can spot the trend in country after country across Europe — richer and poorer, western and eastern, northern and southern. Continue reading What Iceland’s election tells us about post-crisis European politics →

Romania

Ponta’s ruling party extends control with absolute majority in Romanian parliament

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Romanian voters, as expected, rewarded prime minister Victor Ponta (pictured above) with a resounding victory in Sunday’s parliamentary elections.

Ponta, who became prime minister in May 2012 and promptly proceeded to govern with an aggressive posture — engaging in several fights with Romania’s constitutional court and organizing a constitutionally sketchy impeachment referendum against his ideological nemesis, Romanian president Traian Băsescu — has benefitted from Romanian discontent over the economy.

Despite only tepid growth in 2010 and a 0.4% contraction in 2011, the previous government of Emil Boc, an ally of Băsescu, became increasingly and staggeringly unpopular after implementing severe austerity measures, in part to secure loans from the International Monetary Fund and a €20 billion bailout from the IMF and the European Union in 2009 to stabilize Romania’s budget.

Ponta’s center-left alliance of three parties called the Uniunea Social Liberală (USL, Social Liberal Union), defeated Băsescu’s hastily-formed alliance, the Alianţa România Dreaptă (ARD, Right Romania Alliance) by a lopsided margin of 58.6% to 16.7% in elections for the 315-member Chamber of Deputies (Camera Deputaţilor), the lower house of Romania’s parliament (Parlamentul României), giving Ponta an absolute majority.

Two smaller parties also won sufficient support for seats — above the 5% threshold for winning seats in the Chamber of Deputies.  The Partidul Poporului – Dan Diaconescu (PP-DD, Popular Party — Dan Diaconescu), a newly formed party backing Diaconescu, a media figure that waged a nationalist and socialist campaign, won 13.5%.  The Uniunea Democrată Maghiară din România (UDMR, the Democratic Union of Hungarians in Romania), which represents the political interests of ethnic Hungarians in Romania, won 5.3%.

The simultaneous election for the 137-member Senate (Senat), the Romanian parliament’s upper chamber, saw nearly identical results — Ponta’s USL won 60.0%, the ARD 17.0%, Diaconescu’s party 14.2% and the ethnic Hungarians 5.4%.

Given Ponta’s overwhelming majority, the next step would typically be that Băsescu, Romania’s president, appoints Ponta as prime minister to lead a government.  But the bitter and toxic relationship between the two, however, has been the central narrative of Romanian politics in the past year, and Băsescu may refuse to appoint Ponta — perhaps by attempting to appoint as prime minister one of the other leaders of the parties that comprise the USL.

Despite valid concerns about Ponta’s dedication to the rule of law, if Băsescu doesn’t appoint Ponta in the face of the USL’s overwhelming electoral victory, he could risk triggering a constitutional crisis and, potentially, the threat of new elections, thereby frightening international investors and providing his opponents a new reason to seek his impeachment (again).

Nonetheless, the new government would have to work with Băsescu until 2014 when his term ends (unless Ponta attempts to impeach Băsescu).

Romania’s IMF funds will be exhausted next year, however, so the new government will have to work with the IMF and the EU to secure new budgetary funding.  With election season over, however, it seems almost certain that the next government, led by Ponta or otherwise, will be forced to adopt much of the budget-cutting posture of Romania’s previous Boc-led government.

Although Ponta’s government has restored some of the pensions and wages cut by the previous government, he hasn’t moved to cut the 24% VAT that Boc’s government introduced.

Romania

Ponta set to consolidate power in Romanian in Sunday’s elections

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It’s all but certain that Romania’s prime minister, Victor Ponta, will emerge from Romania’s Nov. 9 parliamentary elections as not only the winner, but with an extraordinary mandate to govern in his own right. 

Ponta (pictured above) became prime minister earlier this year in May after the government of Emil Boc fell over protests against the austerity measures that Boc’s government had implemented, in large part dictated as a condition of loans from the International Monetary Fund that have buoyed Romania’s budget since 2009.

Shortly after taking office, however, Ponta start acting in ways that have caused alarm throughout the European Union — Ponta called a constitutionally suspect referendum on July 30 to remove Romania’s president, Traian Băsescu, for overstepping his authority, despite a ruling to the contrary from Romania’s Constitutional Court.  That referendum failed because only 46.23% of voters turned out for the referendum (lower than the 50% threshold required), but Ponta and Băsescu have been locked in political warfare ever since, and will likely continue to do so until Băsescu’s term ends in 2014, although it seems very likely that Ponta and his allies could try to impeach Băsescu after Sunday’s parliamentary elections.

Ponta’s referendum against Băsescu was only one of several constitutionally suspect actions in the first months of his tenure as prime minister.  Ponta made blatant attempts to put allies in charge of Romanian public television, attempted to push through a new first-past-the-post electoral law (that was ultimately rejected by Romania’s constitutional court), stacked the leadership of Romania’s parliament with his allies, and has been accused of plagiarism in his doctoral thesis.

Given that Romania, Europe’s ninth most-populous country with 21 million people, has been a member of the North Atlantic Treaty Organization since 2004 and a full European Union member since 2007, U.S. and European policymakers are anxious that Ponta will attempt to steamroll the Romanian judiciary and/or Băsescu.  The political turmoil in Romania has already caused EU officials to delay Romania’s entry into the border-free Schengen Area,  the free-travel zone that covers much of Europe.

It seems even more unlikely that the election will settle the feud between Ponta and Băsescu, who seems set to do everything he can within his role as Romania’s head of state to frustrate Ponta.  It’s possible that Băsescu could even refuse to nominate Ponta as prime minister following Sunday’s election, which would result in a constitutional crisis and, potentially, new elections.

The election comes at a time when outside investors are losing patience with Romania’s increasingly negative political climate, and, in particular, the IMF will increasingly pressure Romania’s government for concessions before early next year, when its current €5 billion funding package expires.

The latest polls all show a remarkably consistent lead for Ponta’s Uniunea Social Liberală (USL, Social Liberal Union), a patchwork alliance of various parties that formed just in 2011, primarily Ponta’s own Partidul Social Democrat (PSD, Social Democratic Party), the one-time center-right Partidul Naţional Liberal (PNL, National Liberal Party) and others.

Together, the USL as an alliance holds at least 161 seats (the PSD with 92 seats, the PNL with 57) in the 315-member Chamber of Deputies (Camera Deputaţilor), the lower house of Romania’s parliament (Parlamentul României), going into Sunday’s elections, and look very much likely to extend that lead.

Currently, the largest party in the Chamber of Deputies, with 98 seats, is the Partidul Democrat-Liberal (PDL, Democratic Liberal Party), Băsescu’s party, which had governed after its victory in 2008 parliamentary elections until Boc’s government fell earlier this year.  The PDL, which is running under a center-right patchwork alliance, the Alianţa România Dreaptă (ARD, Right Romania Alliance), that formed only in September 2012 as an alliance among the PDL and two smaller parties, the National Peasant Christian-Democratic Party and Civic Force.

The ARD / PDL, however, remains deeply unpopular in a country that saw just 1% GDP growth in 2010, contracted by 0.4% in 2011, and has pushed through three years of harsh austerity measures.

In the 137-member Senate (Senat), the Romanian parliament’s upper chamber, Ponta’s PSD holds 40 seats and his allied PNL holds 27 seats, with just 35 for the PDL.

One recent poll, however, gave Ponta’s USL fully 62% of the vote to just 17% for the ARD, the second choice of Romanian likely voters.

Continue reading Ponta set to consolidate power in Romanian in Sunday’s elections →